Discrimination to save money potentially lawfull

Would it be lawful or unlawful to dismiss an employee at the age of 49 simply to save a large pension bill of up to £1m accruing after their 50th birthday? On the face of it, this would amount to direct age discrimination. The reason solely to save money.

Age discrimination is unique in that treating someone less favourably simply because of their age (direct discrimination) can be lawful if it is justified. An employer can justify their discrimination if they can show, broadly, that the discrimination had a legitimate reason, and the treatment was a proportionate way of achieving this. A similar rule applies to other types of discrimination, but only where there has been indirect discrimination.

But can costs alone amount to a legal justification? The question has arisen in a recent case involving the scenario above and the Chief Executive of the Cumbria Primary Care Trust (a transcript of which can be found here).

Until this case, the Employment Appeal Courts said that costs alone cannot justify discrimination. There must be a further reason. The current draft Code of Practice says the same. The rule was seen as particularly unfair on smaller businesses.

However, the Cumbria PCT case casts considerable doubt on this as a general rule, as it would tend to involve the parties and tribunals in an artificial game of find the other factor.

It is now safer to rely on cost alone as a justification, but any employer should seek advice before going down this route, as the point is still not enshrined in law, and there may be alternative and simpler legal justifications.

This decision will affect all types of indirect discrimination. And the draft Code of Practice needs to be amended already.